Regional recovery strengthens as election cycle begins
Incoming data suggests that growth momentum is largely holding up across the Latin American economy and the recovery remains firmly underway. FocusEconomics analysts estimate that GDP expanded 1.6% annually in Q3, above Q2’s 1.1% increase. If confirmed, the result would mark the fastest growth rate since Q1 2014.
Although official Q3 GDP figures are still outstanding from the majority of economies, growth is expected to have picked up nearly across-the-board. Regional giants Argentina and Brazil are seen as having gained steam as their economies emerge from deep recessions. In Brazil, low inflation and improving labor market dynamics are supporting household spending, while painful economic reforms are finally beginning to bear fruit in Argentina.
However, major player Mexico defied the regional trend, and a preliminary estimate revealed that growth lost some steam in Q3. High inflation and disruptions from two earthquakes in September weighed on the result; however, robust external demand and healthy tourism revenues propped up growth. Meanwhile, Venezuela’s economy continues in free fall, although a lack of official economic data makes the full extent of the recession difficult to judge.
In the political arena, the region’s election cycle kicked off with a key mid-term legislative election in Argentina on 22 October. President Mauricio Macri’s coalition made broad gains, including in the five largest cities. The result should provide momentum to his ambitious reform agenda, which is aimed at shrinking the government’s chronic fiscal deficit and enacting pro-business policies. Next on the agenda, Chile will go to the polls in a presidential election on 19 November. Early polls point to a victory for center-right former President Sebastian Piñera, who is seen as pro-business and would likely lead to a greater government focus on boosting competitiveness and investment.
Prospects held steady; activity seen gaining steam next year
After a tough 2016, the Latin American economy is expected to have returned to growth in 2017, expanding 1.4%. Next year, stronger recoveries in heavyweights Argentina and Brazil will boost growth further. However, political uncertainties are plaguing the outlook as votes are set to take place in Brazil, Colombia, Mexico and Paraguay. NAFTA renegotiations are also clouding the outlook for the Mexican economy. LatinFocus Consensus Forecast analysts see regional GDP increasing 2.4% in 2018, unchanged from last month’s forecast. In 2019, growth is seen at 2.7.
